TRON may reduce TRX block rewards to counter inflation, creating an economic model similar to Bitcoin's halving

TRON may reduce TRX block rewards, creating an economic model similar to Bitcoin's halving to counter inflation's effects and provide long-term value for TRON holders.

TRON may cut TRX’s block rewards to induce inflation and create an economic model similar to Bitcoin’s halving, a move that has been suggested by Justin Sun, the founder of TRON.

This proposal is now being discussed by TRON developers and traders, and it suggests reducing block rewards and adjusting the overall economic framework of TRON to encourage users to engage more actively in staking. This would minimize the dilution of token value, which arises from the excessive production of TRX, a phenomenon that was prevalent during the early stages of the token. However, striking a balance to ensure favorable supply-and-demand dynamics would be crucial.

Earlier, TRON announced plans to transition from an inflationary to a deflationary phase, aiming to align the structure of its block rewards with the maturity of the token. In the early phases of the project, inflation was deemed necessary, but as the token matures and individuals are seeking an inflation-resistant asset like gold or Bitcoin, more deflation may be required.

As stated by Justin Sun, TRON is currently in a deflationary state of 1% per year, making it one of the few major cryptocurrencies with this characteristic. He further suggests that higher TRX prices would offset the reduction in block rewards. Considering the token’s deflationary nature, a further reduction in block rewards wouldn’t pose an issue.

“This proposal suggests reducing the TRX block rewards and adjusting the overall economic framework of TRON to encourage users to engage more actively in staking. This will benefit all stakeholders, ensure the TRX block rewards are consistent with the maturity of the TRON network, and promote the healthy and sustainable development of the TRON ecosystem,” wrote Jamestepforward, TRON developer.

Discussing the changes with investors on X, Sun stated that the move wouldn’t affect TRON validators in a way that would put them at a disadvantage. He noted that validators receive income not only from block rewards but also from transactions and other network activities, thus mitigating the impact of lower block rewards.

The proposal models the effects of reducing blocks, suggesting that a 20% to 50% reduction in blocks would decrease inflation from the current level of -0.81% to a range of -1.20% to -1.78%. This reduction could make TRON more scarce, leading to upward pressure on the market and establishing it as a long-term value storage asset like gold. On the downside, stakers might face short-term setbacks, and transaction fees could be affected.

Like Bitcoin, which benefits from reduced block rewards, the modeling shows that reducing blocks by 1 million TRX would introduce 1.5% deflation per year, a 50% increase in deflation. Reducing blocks by 2 million TRX would result in 2% deflation per year, a 100% increase in deflation, essentially doubling the deflation and implementing TRON’s version of the Bitcoin halving.

The proposal also examines the implications of reduced block rewards for the role of validators in the network. These validators are crucial for securing the network, so reducing their rewards must be carefully considered. Sun notes that these validators have diversified income streams, which helps mitigate the impact of adjusting the inflation rate.

TRON’s DEX volume dropped significantly from $299 million to $121 million, which might indicate a short-term decline in price. Lower network activity can sometimes be a sign of lower prices. Three years ago, when TRX reached $0.38, DEX volume peaked at $299 million.

However, Solana failed in its attempt to reduce block rewards as validators voted against the proposal. The SIMD 0228 proposal didn’t gain approval because many small validators were concerned about the potential negative effects. But according to Justin Sun, the benefits of reducing blocks far outweigh the negative impacts, especially considering that validators have a diversified portfolio of income streams and that deflationary measures would bring TRON more in line with long-term assets like gold.